Bank of Japan board debated pros and cons of more easing at March meeting

Bank of Japan policymakers remained divided on how quickly to ramp up stimulus to hit their elusive price goal, minutes of their March meeting showed, even as slowing global demand clouded the outlook for the export-reliant economy.

While most in the nine-member board saw no immediate need to expand an already massive stimulus program, several warned of heightening risks to Japan’s recovery that could warrant additional monetary easing, the minutes showed on Wednesday.

“Considering the difficulty in shifting inflation expectations, it was important to respond pre-emptively in the event of a change in economic and price developments,” one member was quoted as saying.

Another said the BOJ should be “prepared” to ease if risks to the economy and prices materialize, the minutes showed.

But others were more cautious. One member said the BOJ should not respond to short-term fluctuations in economic data, and instead look at the long-term trend in guiding monetary policy, according to the minutes.

Those reluctant to ease any time soon also pointed to the rising costs of prolonged easing, such as the hit to financial institutions’ earnings from years of ultralow interest rates.

A few board members said the BOJ must pay more attention to the impact its prolonged ultraloose policy was having on regional banks’ profits, the minutes showed.

The hit to regional banks’ profits and equity capital could “gradually materialize” and prompt more banks to take excessive risks to secure profits, those board members were quoted as saying.

At the two-day rate review that ended on March 15, the BOJ kept monetary policy steady despite cutting its assessments on exports and output amid heightening global economic risks.

Apparently based on discussions about the need to keep in step with other central banks, the BOJ decided at a policy-setting meeting in April to clarify its forward guidance by committing to “extremely low” interest rates at least through around spring 2020.

At the meeting in March, many BOJ policymakers, worried over high uncertainties regarding the global economy, pointed to the need to pay attention to “the possibility that investors’ risk aversion would heighten and the markets would become unstable,” according to the minutes.

Some policymakers said that, while the widely held view is that the global economy will pick up in the latter half of 2019, there are “considerable uncertainties in this regard,” the minutes showed.